Reed’s, Inc. (NASDAQ: REED) (“Reed’s” or the “Company”), owner of
the nation’s leading portfolio of handcrafted, natural ginger
beverages, is reporting financial results for the three months
ended September 30, 2022.
Q3 2022 Financial Highlights (vs. Q3 2021):
- Net sales were $12.1 million compared to $13.4 million.
- Gross profit was $2.4 million compared to $3.9 million, with
gross margin of 20.1% compared to 28.9%.
- Operating expenses were reduced to $4.9 million compared to
$7.5 million.
- Operating loss improved to $2.5 million compared to a loss of
$3.7 million.
- Modified EBITDA loss improved to $2.2 million compared to $3.1
million.
Management Commentary
“We continued to navigate a challenging market environment
during the third quarter, especially relative to our record net
sales reached in Q3 2021,” said Norman E. Snyder, CEO of Reed’s.
“Net sales for the quarter were further affected by a delayed
shipment of swing-lid bottles that pushed approximately $3.8
million of sales into the fourth quarter, which impacted gross
margin as these products are margin accretive. As of today, we have
shipped over $3.0 million of these swing-lid bottles and expect to
ship the rest before quarter end. Regardless of the delay, we
continued to execute on our cost saving initiatives, as reflected
by a 35% reduction in operating expenses led by a 27% reduction in
shipping and handling costs, resulting in improved modified EBITDA
for the quarter. We expect to further reduce costs in the months
ahead as we generate additional savings in transportation and
product costs.
“Looking forward, we are reducing our net sales and gross margin
guidance for the year as a result of lower sales velocities driven
by price increases and product mix. However, we continue to expect
improving modified EBITDA in 2022 and turning both modified EBITDA
and cash flow positive next year as we realize the full benefit of
our cost saving and supply chain initiatives.”
Third Quarter 2022 Financial Results
During the third quarter of 2022, net sales were $12.1 million
compared to $13.4 million in the prior year. The decrease was
primarily driven by a delayed shipment of swing-lid bottles,
shifting $3.8 million of net sales from the third quarter to the
fourth quarter and increased trade spend.
Gross profit for the third quarter of 2022 was $2.4 million
compared to $3.9 million in the same period in 2021. Gross margin
was 20.1% compared to 28.9% in the year-ago quarter. The decrease
was driven by lower revenue as well as higher promotional spend and
sales mix.
Delivery and handling costs were reduced by 27% to $2.2 million
during the third quarter of 2022 compared to $3.1 million in the
third quarter of 2021. The decrease was primarily driven by a
continued reduction in freight rates and fuel costs, as well as
improved efficiencies. Delivery and handling costs were 19% of net
sales or $3.38 per case, compared to 23% of net sales or $3.89 per
case during the same period last year.
Selling and marketing costs were reduced by 54% to $1.2 million
during the third quarter of 2022 compared to $2.6 million in the
year-ago quarter. As a percentage of net sales, selling and
marketing costs were reduced to 10% compared to 20%.
General and administrative expenses were reduced by 21% to $1.4
million compared to $1.8 million in the third quarter of 2021. As a
percentage of net sales, general and administrative costs were
reduced to 12% compared to 13%.
Operating loss during the third quarter of 2022 improved to $2.5
million or $(0.03) per share, compared to $3.7 million or $(0.04)
per share in the third quarter of 2021, reflecting our lowest
operating loss since Q3 2020.
Modified EBITDA loss improved to $2.2 million in the third
quarter of 2022 compared to a loss of $3.1 million in the third
quarter of 2021. Q3 Modified EBITDA loss of $2.2 million was an
improvement of 43% versus Q1 and a 50% sequential improvement from
Q2.
Liquidity and Cash Flow
For the third quarter of 2022, the Company used approximately
$177,000 of cash in operating activities compared to $5.0 million
of cash used for the same period in 2021. The improvement is driven
by strong cash collections and a reduction in inventory.
As of September 30, 2022, the Company had approximately $25,000
of cash and $21.7 million of total debt net of capitalized
financing fees. The Company also had $3.5 million of additional
borrowing capacity on its revolving line of credit. The lower cash
balance is a function of timing. As of October 31, 2022, the
Company had approximately $253,000 of cash.
FY 2022 Financial Guidance and Outlook
Reed’s expects 2022 net sales to range between approximately
$56-59 million, reflecting growth of approximately 13-19% from
2021. The Company also expects gross margin in 2022 to be
approximately 25% compared to 27.4% in 2021.
Management remains committed to executing on cost savings
initiatives to further reduce production and shipping costs,
including prioritizing direct shipments, reducing raw material
costs of cans and bottles, revisiting third-party logistics
agreements, and optimizing distribution centers. These cost saving
initiatives are calculated to result in improved modified EBITDA in
fiscal 2022, with the Company turning modified EBITDA and cash flow
positive in 2023.
Conference Call
The Company will conduct a conference call today, November 10,
2022, at 5:00 p.m. Eastern time to discuss its results for the
third quarter ended September 30, 2022.
Reed’s management will host the conference call, followed by a
question-and-answer period.
Date: Thursday, November 10, 2022Time: 5:00 p.m. Eastern
timeToll-free dial-in number: (800) 239-9838International dial-in
number: (646) 828-8193Conference ID: 5915539Webcast: Reed’s Q3 2022
Conference Call
Please dial into the conference call 5-10 minutes prior to the
start time. An operator will register your name and organization.
If you have any difficulty connecting with the conference call,
please contact the company’s investor relations team at (720)
330-2829.
The conference call will also be broadcast live and available
for replay on the investor relations section of the Company’s
website at https://investor.reedsinc.com.
About Reed's, Inc.
Reed’s is an innovative company and category leader that
provides the world with high quality, premium and naturally bold™
better-for-you beverages. Established in 1989, Reed's is a leader
in craft beverages under the Reed’s®, Virgil’s® and Flying
Cauldron® brand names. The Company’s beverages are now sold in over
45,000 stores nationwide.
Reed’s is known as America's #1 name in natural, ginger-based
beverages. Crafted using real ginger and premium ingredients, the
Reed’s portfolio includes ginger beers, ginger ales, ready-to-drink
ginger mules, hard ginger ale, ginger shots, and ginger candies.
The brand has recently successfully expanded into the zero-sugar
segment with its proprietary, natural sweetener system.
Virgil's® is an award-winning line of craft sodas, made with the
finest natural ingredients and without GMOs or artificial
preservatives. The brand offers an array of great tasting, bold
flavored sodas including Root Beer, Vanilla Cream, Black Cherry,
Orange Cream, and more. These flavors are also available in nine
zero sugar varieties which are naturally sweetened and certified
ketogenic.
Flying Cauldron® is a non-alcoholic butterscotch beer
prized for its creamy vanilla and butterscotch flavors. Sought
after by beverage aficionados, Flying Cauldron is made with natural
ingredients and no artificial flavors, sweeteners, preservatives,
gluten, caffeine, or GMOs.
For more information,
visit drinkreeds.com, virgils.com and flyingcauldron.com.
Forward-Looking Statements
Statements in this release that are not historical are
forward-looking statements made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are typically identified
by terms such as "estimate," "expect,” “forecast,” "guidance,"
"intend," “calculated,” "likely," "financial outlook," "plan,
"potential," "predict," "probable," "project," "seek," "should,"
"will," and similar expressions. These forward-looking statements
are based on current expectations and include our, management’s
expectations and guidance for fiscal year 2022 under the heading
“FY 2022 Financial Guidance and Outlook”. The achievement or
success of the matters covered by such forward-looking statements
involves risks, uncertainties, and assumptions, many of which
involve factors or circumstances that are beyond our control.
Reed‘s 2022 guidance reflects year-to-date and expected future
business trends and includes impacts of COVID-19 on the supply
chain and logistics as of the date hereof. New supply chain
challenges that may develop and further potential inflation cannot
be reasonably estimated and are not factored into current fiscal
2022 guidance. These risks could materially impact our ability to
access raw materials, production, transportation and/or other
logistics needs.
Financial guidance should not be viewed as a substitute for full
financial statements prepared in accordance with GAAP.
If any such risks or uncertainties materialize or if any of the
assumptions prove incorrect, Reed’s actual results could differ
materially from the results expressed or implied by the
forward-looking statements we make, including our ability to
achieve our targets for the fiscal year ending December 31, 2022.
The risks and uncertainties referred to above include, but are not
limited to: risks associated with current economic uncertainties
tied to the COVID-19 pandemic, including but not limited to its
effect on customer demand for the our products and services and the
impact of potential delays in supply of product inputs and customer
payments; risks associated with new product releases; the impacts
of further inflation; risks that customer demand may fluctuate or
decrease; risks that we are unable to collect unbilled contractual
commitments, particularly in the current economic environment; our
ability to compete successfully and manage growth; our significant
debt obligations; our ability to develop and expand strategic and
third party distribution channels; our dependence on third party
suppliers, brewers and distributors risks related to our
international operations; our ability to continue to innovate; our
strategy of making investments in sales to drive growth; increasing
costs of fuel and freight, protection of intellectual property;
competition; general political or destabilizing events, including
the war in Ukraine, conflict or acts of terrorism; the effect of
evolving domestic and foreign government regulations, including
those addressing data privacy and cross-border data transfers; and
other risks detailed from time to time in Reed’s public filings,
including Reed’s annual report on Form 10-K filed on April 15, 2022
and subsequent reports filed with the Securities and Exchange
Commission, including Reed’s Quarterly Report on Form 10-Q expected
to be filed on or about November 14, 2022, which are available on
the Securities and Exchange Commission’s web site
at www.sec.gov. These forward-looking statements are based on
current expectations and speak only as of the date hereof. Reed’s
assumes no obligation and does not intend to update these
forward-looking statements, except as required by law.
Investor Relations Contact
Sean Mansouri, CFAElevate IRir@reedsinc.com (720) 330-2829
REED’S,
INC. |
|
CONDENSED
STATEMENTS OF OPERATIONS |
|
For the
Three and Nine Months Ended September 30, 2022 and
2021 |
|
(Unaudited) |
|
(Amounts in
thousands, except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
Nine Months
Ended |
|
September 30, |
September 30, |
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net
Sales |
$ |
12,094 |
|
|
$ |
13,402 |
|
|
$ |
38,001 |
|
|
$ |
36,818 |
|
Cost of
goods sold |
|
9,659 |
|
|
|
9,530 |
|
|
|
29,335 |
|
|
|
25,824 |
|
Gross profit |
|
2,435 |
|
|
|
3,872 |
|
|
|
8,666 |
|
|
|
10,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery and
handling expense |
|
2,249 |
|
|
|
3,093 |
|
|
|
8,893 |
|
|
|
8,888 |
|
Selling and
marketing expense |
|
1,220 |
|
|
|
2,644 |
|
|
|
5,623 |
|
|
|
7,493 |
|
General and
administrative expense |
|
1,420 |
|
|
|
1,788 |
|
|
|
5,319 |
|
|
|
6,227 |
|
Total operating expenses |
|
4,889 |
|
|
|
7,525 |
|
|
|
19,835 |
|
|
|
22,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
(2,454 |
) |
|
|
(3,653 |
) |
|
|
(11,169 |
) |
|
|
(11,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
(777 |
) |
|
|
(234 |
) |
|
|
(2,119 |
) |
|
|
(692 |
) |
Gain on
extinguishment of PPP note payable |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
(3,231 |
) |
|
|
(3,887 |
) |
|
|
(13,288 |
) |
|
|
(11,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Series A Convertible Preferred
Stock |
|
- |
|
|
|
- |
|
|
|
(5 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Attributable to Common Stockholders |
$ |
(3,231 |
) |
|
$ |
(3,887 |
) |
|
$ |
(13,293 |
) |
|
$ |
(11,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share – basic and diluted |
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic and diluted |
|
112,717,818 |
|
|
|
93,644,935 |
|
|
|
101,525,154 |
|
|
|
90,400,832 |
|
REED’S,
INC. |
|
CONDENSED
BALANCE SHEETS |
|
(Amounts in
thousands, except share amounts) |
|
|
|
|
|
|
|
|
|
|
September
30, |
|
|
December
31, |
|
2022 |
2021 |
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
Cash |
$ |
25 |
|
|
$ |
49 |
|
Accounts
receivable, net of allowance of $63 and $215, respectively |
|
6,008 |
|
|
|
5,183 |
|
Inventory |
|
19,916 |
|
|
|
17,049 |
|
Receivable
from related party |
|
1,502 |
|
|
|
933 |
|
Prepaid
expenses and other current assets |
|
1,394 |
|
|
|
1,491 |
|
Total
current assets |
|
28,845 |
|
|
|
24,705 |
|
|
|
|
|
|
|
|
|
Property and
equipment, net of accumulated depreciation of $727 and $561,
respectively |
|
826 |
|
|
|
992 |
|
Intangible
assets |
|
626 |
|
|
|
624 |
|
Total assets |
$ |
30,297 |
|
|
$ |
26,321 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Accounts
payable |
$ |
9,575 |
|
|
$ |
10,434 |
|
Accrued
expenses |
|
228 |
|
|
|
286 |
|
Revolving
line of credit, net of capitalized financing costs of $403 and $0,
respectively |
|
9,103 |
|
|
|
10,229 |
|
Payable to
related party |
|
1,811 |
|
|
|
614 |
|
Current
portion of convertible notes payable, net of debt discount of $492
and $0, respectively |
|
4,414 |
|
|
|
- |
|
Current
portion of lease liabilities |
|
180 |
|
|
|
161 |
|
Total
current liabilities |
|
25,311 |
|
|
|
21,724 |
|
Convertible
note payable, net of debt discount of $666 and $0, respectively,
less current portion |
|
8,165 |
|
|
|
|
|
Lease
liabilities, less current portion |
|
257 |
|
|
|
394 |
|
Total liabilities |
|
33,733 |
|
|
|
22,118 |
|
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit): |
|
|
|
|
|
|
|
Series A
Convertible Preferred stock, $10 par value, 500,000 shares
authorized, 9,411 shares issued and outstanding |
|
94 |
|
|
|
94 |
|
Common
stock, $.0001 par value, 180,000,000 shares authorized; 112,752,750
and 93,733,975 shares issued and outstanding, respectively |
|
11 |
|
|
|
9 |
|
Additional
paid in capital |
|
112,889 |
|
|
|
107,237 |
|
Accumulated
deficit |
|
(116,430 |
) |
|
|
(103,137 |
) |
Total stockholders’ equity (deficit) |
|
(3,436 |
) |
|
|
4,203 |
|
Total liabilities and stockholders’ equity
(deficit) |
$ |
30,297 |
|
|
$ |
26,321 |
|
REED’S,
INC. |
CONDENSED
STATEMENTS OF CASH FLOWS |
For the Nine
Months Ended September 30, 2022 and 2021 |
(Unaudited) |
(Amounts in
thousands) |
|
|
|
|
|
|
|
|
|
September
30, |
|
|
September
30, |
|
2022 |
2021 |
Cash flows
from operating activities: |
|
|
|
|
|
|
|
Net
loss |
$ |
(13,288 |
) |
|
$ |
(11,536 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
Depreciation |
|
79 |
|
|
|
106 |
|
Gain on termination of leases |
|
- |
|
|
|
(2 |
) |
Gain on extinguishment of PPP note payable |
|
- |
|
|
|
(770 |
) |
Amortization of debt discount |
|
307 |
|
|
|
162 |
|
Amortization of prepaid financing costs |
|
431 |
|
|
|
147 |
|
Fair value of vested options |
|
448 |
|
|
|
1,264 |
|
Fair value of vested restricted shares granted to officers |
|
137 |
|
|
|
234 |
|
Common shares issued as financing costs |
|
37 |
|
|
|
- |
|
Change in allowance for doubtful accounts |
|
(152 |
) |
|
|
(95 |
) |
Inventory write-downs |
|
35 |
|
|
|
(64 |
) |
Accrued interest on convertible note |
|
386 |
|
|
|
- |
|
Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
Accounts receivable |
|
(673 |
) |
|
|
(2,132 |
) |
Inventory |
|
(2,901 |
) |
|
|
(4,332 |
) |
Prepaid expenses and other assets |
|
(399 |
) |
|
|
(491 |
) |
Decrease in right of use assets |
|
86 |
|
|
|
74 |
|
Accounts payable |
|
(860 |
) |
|
|
2,126 |
|
Accrued expenses |
|
(62 |
) |
|
|
82 |
|
Lease liability |
|
(118 |
) |
|
|
(78 |
) |
Net
cash used in operating activities |
|
(16,507 |
) |
|
|
(15,305 |
) |
Cash flows
from investing activities: |
|
|
|
|
|
|
|
Trademark
costs |
|
(2 |
) |
|
|
(6 |
) |
Purchase of
property and equipment |
|
- |
|
|
|
(95 |
) |
Net
cash used in investing activities |
|
(2 |
) |
|
|
(101 |
) |
Cash flows
from financing activities: |
|
|
|
|
|
|
|
Proceeds from line of credit |
|
40,576 |
|
|
|
49,940 |
|
Payments on line of credit |
|
(41,299 |
) |
|
|
(41,685 |
) |
Payment of debt issuance costs |
|
(483 |
) |
|
|
- |
|
Proceeds from sale of common stock |
|
5,034 |
|
|
|
7,327 |
|
Proceeds from convertible note payable, net of expenses |
|
12,430 |
|
|
|
- |
|
Repayment of convertible notes payable |
|
(400 |
) |
|
|
|
|
Amounts from related party, net |
|
629 |
|
|
|
155 |
|
Payments on capital lease obligation |
|
- |
|
|
|
(2 |
) |
Proceeds from exercise of options |
|
- |
|
|
|
32 |
|
Repurchase of common stock |
|
(2 |
) |
|
|
(15 |
) |
Net
cash provided by financing activities |
|
16,485 |
|
|
|
15,752 |
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash |
|
(24 |
) |
|
|
346 |
|
Cash at
beginning of period |
|
49 |
|
|
|
595 |
|
Cash at end
of period |
$ |
25 |
|
|
$ |
941 |
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
Cash paid
for interest |
$ |
1,051 |
|
|
$ |
258 |
|
Non
-cash investing and financing activities |
|
|
|
|
|
|
|
Dividends on
Series A Convertible Preferred Stock |
$ |
5 |
|
|
$ |
5 |
|
Modified EBITDA
In addition to our GAAP results, we present Modified EBITDA as a
supplemental measure of our performance. However, Modified EBITDA
is not a recognized measurement under GAAP and should not be
considered as an alternative to net income, income from operations
or any other performance measure derived in accordance with GAAP,
or as an alternative to cash flow from operating activities as a
measure of liquidity. We define Modified EBITDA as net income
(loss), plus, interest expense, depreciation and amortization,
stock-based compensation, changes in fair value of warrant expense,
and one-time restructuring-related costs including employee
severance and asset impairment.
Management considers our core operating performance to be that
which our managers can affect in any particular period through
their management of the resources that affect our underlying
revenue and profit generating operations during that period.
Non-GAAP adjustments to our results prepared in accordance with
GAAP are itemized below. You are encouraged to evaluate these
adjustments and the reasons we consider them appropriate for
supplemental analysis. In evaluating Modified EBITDA, you should be
aware that in the future we may incur expenses that are the same as
or similar to some of the adjustments in this presentation. Our
presentation of Modified EBITDA should not be construed as an
inference that our future results will be unaffected by unusual or
non-recurring items.
Set forth below is a reconciliation of net loss to Modified
EBITDA for the three months ended September 30, 2022 and 2021
(unaudited; in thousands):
|
Three Months
Ended |
|
September 30, |
|
2022 |
|
|
2021 |
|
Net loss |
$ |
(3,231 |
) |
|
$ |
(3,887 |
) |
|
|
|
|
|
|
|
|
Modified
EBITDA adjustments: |
|
|
|
|
|
|
|
Depreciation
and amortization |
|
58 |
|
|
|
62 |
|
Interest
expense |
|
777 |
|
|
|
234 |
|
Stock option
and other noncash compensation |
|
214 |
|
|
|
501 |
|
Total EBITDA adjustments |
$ |
1,050 |
|
|
$ |
797 |
|
|
|
|
|
|
|
|
|
Modified
EBITDA |
$ |
(2,182 |
) |
|
$ |
(3,090 |
) |
We present Modified EBITDA because we believe it
assists investors and analysts in comparing our performance across
reporting periods on a consistent basis by excluding items that we
do not believe are indicative of our core operating performance. In
addition, we use Modified EBITDA in developing our internal
budgets, forecasts, and strategic plan; in analyzing the
effectiveness of our business strategies in evaluating potential
acquisitions; making compensation decisions; and in communications
with our board of directors concerning our financial performance.
Modified EBITDA has limitations as an analytical tool, which
includes, among others, the following:
- Modified EBITDA does not reflect our
cash expenditures, or future requirements, for capital expenditures
or contractual commitments;
- Modified EBITDA does not reflect
changes in, or cash requirements for, our working capital
needs;
- Modified EBITDA does not reflect
future interest expense, or the cash requirements necessary to
service interest or principal payments, on our debts; and
- Although depreciation and
amortization are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future, and
Modified EBITDA does not reflect any cash requirements for such
replacements.
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